A Segmented Markets Model of Inflation
Models of inflation usually have monetary policy impacting the economy through either an interest rate or a monetary/credit quantity channel but not through both. We argue that policy is transmitted via two distinct types of agents – those that are and that are not liquidity constrained. The implication is that both channels must be seen as complementary, joint indicators of inflation and must both be incorporated in models of inflation. We provide a formal representation of price level determination and behaviour in this segmented markets framework and evaluate it econometrically using US data. Length: 32 pages
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- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- repec:fth:harver:1466 is not listed on IDEAS
- Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
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